This lesson explains what a computerized accounting system is, how a company selects a system, and what the advantages and disadvantages of computerized accounting systems are.

What Is a Computerized Accounting System?

How is your company doing? Being able to answer that question requires you to know how much money you're making, which in turn requires accurate bookkeeping. Keeping accurate financial records is crucial to the success of any business, so it's important to know your options.

While some firms still do their bookkeeping by hand, most firms generally have too many transactions to sustain a manual accounting system. The more complicated the financial activities of your business are, the more likely it is that you'll need a computerized accounting system to ensure effective financial reporting. Computerized accounting systems are software programs that are stored on a company's computer, network server, or remotely accessed via the Internet.

Computerized accounting systems allow you to set up income and expense accounts, such as rental or sales income, salaries, advertising expenses, and material costs. They also can be used to manage bank accounts, pay bills, and prepare budgets. Depending upon the program, some accounting systems also allow you to prepare tax documents, handle payroll, and manage project costing.

You can generally customize the software to meet the needs of your business. It's important to make sure that your staff are trained and understand how to use the system correctly so that your company can successfully use your accounting program.

The Different Types

As you start looking at computerized systems, you'll find that there are a lot of options! Basic features tend to be consistent across most programs. It's helpful to compare several to see which features and capabilities best match your business operations.

Generally, the least expensive computerized options are pre-developed, off-the-shelf accounting software packages. These are software packages that typically offer common functions that apply to most businesses, and usually have some flexibility to customize certain features to meet the needs of a company. Most businesses, however, will find they may need to adapt their processes to match how the software works.

Examples of accounting software packages designed for small businesses include QuickBooks, Sage (or Peachtree), and Bookkeeper. Depending upon which version of these programs you buy, you'll be able to set up income and expense accounts, track vendor billing, and manage payroll. These off-the-shelf systems generally have you up and running fairly quickly, depending on the complexity of your business. Most include basic report templates and you'll probably be able to customize reports to get information in a way that is more fitting for your needs.

If your business has complicated, specific needs, you may want to consider having a customized accounting system created. While it's not the cheapest or quickest option, it will allow you to have a program that handles your business most effectively. Customized systems are tailored to your specifications, meeting the unique needs of your company. They can offer functionality not available in other systems, or can allow you to cut out parts of the mass-marketed programs you don't need.

Advantages and Disadvantages

There are several specific advantages of computerized accounting systems. Organization of information goes much more quickly, primarily because once data is entered, it automatically is classified as it should be. Report generation is also done automatically, providing faster feedback for decision makers. Many businesses find their finances are more accurately organized when they use a computerized system.

There are some disadvantages to computerized accounting systems, however. Customized programs can be quite expensive. Initial set up may require considerable time to enter data, double check information, train staff, and get your customers familiar to new invoices and accounting procedures. Mistakes inputting information, computer problems, and power outages can all affect access to and accuracy of data and reports. Consistency in backing up data is really important.

Lesson Summary

A computerized accounting system is a software program that is stored on a company's computer, network server, or remotely accessed via the Internet, and it can be a great benefit for a business. It can help streamline accounting steps and help minimize errors. However, the information is only as accurate as what is entered into the system, and power outages and computer problems can affect access to data. For this reason, it's important that the system is set up to meet the needs of the business and adequate training is provided to understand how to use and back up the system.

Key Terms

Computerized accounting systems - software programs designed to streamline a company's business and accounting needs; stored on a company's computer, network server, or remotely accessed via the Internet

Income and expense accounts - Individual financial accounts for different portions of a business; can be set up in a computerized accounting system

Summary:

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